Doc's Latest Thoughts on the Market
Last call for Stansberry Portfolio Solutions... Why Doc Eifrig is thrilled about our new product... Doc's latest thoughts on the market... Two potential paths for the coming months... Will the 'Trump Trade' falter?...
We'll begin today with a reminder...
Your chance to try our new Stansberry Portfolio Solutions product is almost over...
Stansberry Portfolio Solutions is about to "go live" this Wednesday, February 1. This means we must hear from all interested readers before tomorrow night, January 31, at midnight Eastern time. Click here to claim your 100% risk-free membership now.
If you're still on the fence and would like to learn more – including whether you qualify for any discounts off the normal cost of these products – just give us a call tomorrow at (800) 667-4214 and our dedicated member services team will be happy answer any questions you have.
But please don't delay. After tomorrow, it will be too late... and we don't know when we'll be able to open enrollment again.
Speaking of Stansberry Portfolio Solutions...
Our colleague Dr. David "Doc" Eifrig shared his own unique perspective on this product with his Retirement Trader subscribers on Friday. As he wrote in the January 27 issue...
We know that managing your finances is hard. At Stansberry Research, we've been helping subscribers do it for nearly 18 years now. But there's often a disconnect between research and implementation. We can deliver the best trade ideas in the world, but folks still have to integrate them into their portfolios. That's why Stansberry Research is launching a radical new product called Stansberry Portfolio Solutions.
It's not just research. It's a fully allocated and managed portfolio that shows readers exactly how we'd use our own money today to invest in our best ideas. No more guessing on position sizes or risks. No more wondering which stocks are the best buys.
Each month, our investment committee – which is headed by Stansberry Research founder Porter Stansberry, True Wealth editor Steve Sjuggerud, and myself – reviews the markets and our investments and designs a complete portfolio to maximize return and minimize risk.
As Doc explained, this new product will allow him to provide a whole new level of insight and service that he simply hasn't been able to offer before...
To make our contribution to the effort, my team and I have been running the numbers, checking correlations, and testing how different portfolios of stocks, bonds, and funds will react in order to build a safe and rewarding income portfolio. It's been a breath of fresh air.
You see, perhaps unknown to you, we spend a ton of time contemplating how our positions work together... perhaps even more than we think about what individual investments will provide the best return. Until Stansberry Portfolio Solutions, we haven't been able to completely share that information with readers.
And as Doc noted, having a well-balanced, diversified portfolio has never been more important...
Regular readers know that I'm all about empowering you to make your own (careful) choices. At the same time, I hope I've impressed upon you the importance of thinking about how your trades work together...
If your portfolio is too concentrated, a decline in one sector – even if the businesses you've bought remain strong relative to their competitors – will hamper your returns. Ideally, you'd have some positions that do well when the economy does well, and ones that do well when it falters. You'd spread across sectors. You'd have some with big upside and others that focus just as much on avoiding downside...
While official measures of volatility are low, uncertainty is high today. Political risk around the globe means that it's hard to tell what assets or sectors will perform well in the coming months. And when a presidential tweet or press conference can send stocks in any direction, you have to be prepared.
Doc also shared his latest thoughts on the market...
In short, after taking a pause in December and early January, it appears the "Trump Trade" has resumed. More from the issue...
Here's the most concise explanation of the post-Trump market: Investors are moving out of bonds and into stocks. Folks think that some of Trump's policies could boost growth and stimulate inflation in turn. Growth, of course, is good for stocks. So stock prices have been rising.
Meanwhile, inflation is bad for bonds. So bond prices have mostly been falling. This is a chart of the yield on the 10-year Treasury. Recall that yield moves inversely to bond prices.
It's anyone's guess whether these expectations will prove correct... whether we'll see greater growth and higher inflation... or if both bonds and stocks have moved too far, too fast. There's a lot we don't know. But that's the basic story of what's driving markets today.
So... what's next?
Doc says the markets could take one of two paths over the next couple months... and there is a case to be made for both. We could finally see a reversal...
Maybe things turn around. We called for – and started to see – a "Trump Slump" that reversed some of the stock gains and bond losses... The rotation from bonds to stocks could switch. Stocks could lose their momentum and the higher yield on bonds could bring renewed attention from investors.
On the other hand, Doc says it's entirely possible the "Trump Trade" continues awhile longer...
Earnings remain strong. Valuations are on the high end, but there's no signal of danger. And while we know that over the long term, stocks provide good returns, they don't do it every year. Rather, they have long periods of dull returns between sharp bull markets. (A chart reader would call the quiet periods "consolidation.")
We've seen a sharp rise this year, but it's important to note that over the last 10 years, stocks haven't really done well. Stocks return about 7% a year on average. But from 2007 through 2016, they've only returned 4.7%. To meet up with 7% growth over 10 years, stocks would have to rise 25% this year.
Even since 2000, stocks have only returned 3.5% a year. We'd need to rise 58% from here to meet a 7% annual growth rate since then. So the market could still have some catching up to do...
Ultimately, the market's near-term path may depend on whether Trump "reality" meets expectations...
For example, the market cheered the new administration's actions to slash regulations in the energy industry last week.
But stocks sold off this morning following Trump's weekend "travel ban," which was promptly blocked by Federal judges and drew sharp criticism from several Republican lawmakers. As news service Reuters reported...
Trump on Friday signed executive orders to suspend travel to the United States from seven Muslim-majority countries on grounds of national security. Thousands of people rallied in major U.S. cities and at airports in protest, with Nike and Starbucks among companies that said they did not support the ban.
"The market is reacting negatively right now because of the uncertainty that it creates," said Robert Pavlik, chief market strategist at Boston Private Wealth. "If it can pull more Republicans off of the President's following and maybe weaken his strength in Congress, then you start to wonder about the other initiatives that may not get passed."
In other words, if Trump's more controversial proposals – such as those regarding immigration and trade – begin to overshadow the pro-growth proposals the market cheered in November, the rally could falter.
New 52-week highs (as of 1/27/17): Apple (AAPL), Bancroft Fund (BCV), BP Prudhoe Bay Royalty Trust (BPT), C.H. Robinson Worldwide (CHRW), short position in General Growth Properties (GGP), Altria (MO), Microsoft (MSFT), PowerShares S&P 500 BuyWrite Portfolio Fund (PBP), VanEck Vectors Russia Fund (RSX), and Shopify (SHOP).
In today's mailbag, praise and contempt for the latest essay from Digest contributing editor P.J. O'Rourke... and two subscribers have questions on gold. What's on your mind? Let us know at feedback@stansberryresearch.com.
"This was the best P.J. O'Rourke yet. As usual, humorous, but so right on regarding how we should handle our new president's talk and actions." – Paid-up subscriber Don M.
"One is hard put to find a flattering picture of Mr. Trump in mainstream media publications. Nonetheless, his facial expressions do often have an adolescent quality. That doesn't need to be a drawback, though, since adolescents can be very smart and decisive, two qualities which President Trump has already abundantly displayed." – Paid-up subscriber Barbara E.
"These are two trick questions:
- Would you sit down and have a few beers with President Donald Trump?
- Would you sit down and have a few beers with former President George W. Bush?
"Now, why are these trick questions? Because neither man would sit down and have a few beers with you! Is that because you are a shoddy, untrustworthy, incurably biased, pre-prejudiced, ignorant buffoon writer? No, it's because neither man drinks. Get the facts before you go making references to having a few with our new President.
"Each man does not drink for different reasons, and I admire both of them for their self-discipline. Next time you pour yourself your second or third or fourth drink of the night, contemplate your level of achievement in life. Getting paid for being sarcastic and snarky is not really achieving anything. It's just making a good living at other people's expense." –
Paid-up subscriber Wiley Cotton
P.J. O'Rourke comment: Dear Mr. Cotton, you certainly do make your opinion clear! But I'll offer no apology for what I do. I'm a capitalist. A capitalist must put his capital to the most efficient use. My capital consists of snark and sarcasm. Therefore, getting paid for being sarcastic and snarky is better than being sarcastic and snarky for free.
"Are you still advocating gold purchases? What do we do with gold now?" – Paid-up subscriber William S.
Brill comment: In a word, yes.
For years, we've recommended keeping a portion of your savings in physical gold and silver as "insurance" against financial disaster. This hasn't changed, and likely won't ever change... at least so long as the global monetary system is based on fiat currency. How much is up to you and your circumstances, but we generally recommend keeping around 10%-20% of your wealth in physical metals. Again, we treat these holdings much like insurance... We don't get excited when prices rise, and we don't lose sleep when prices fall. They're something you buy and hold and hope you never have to use.
But from time to time – when precious metals become relatively cheap and unloved, as they have again today – it can also make sense to speculate on higher prices. In this case, vehicles like exchange-traded funds or mining stocks can provide leverage to the price of the underlying metals. We treat these positions as we would any other investment or speculation... meaning we recommend using good risk-management strategies like proper position sizing and trailing stop losses to protect your capital.
"Dear Stansberry team, I have been an Alliance member since 2011 (a great Christmas present from my husband!) and am very well diversified and aware of asset allocation thanks to my devotion to your team's writings and presentations at Stansberry events.
My husband recently inherited money and we are interested in buying at least $100,000 in physical gold. We are wondering if you have suggestions for the form of gold we should purchase. We are also able to go anywhere in the world to purchase the gold, but want to be sure that we can legally get the gold into the USA without paying a ridiculous amount of duty or other fees. Can you make suggestions for what we should consider and where? We're hoping that buying the gold is a fun and profitable adventure." – Paid-up subscriber Susan
Brill comment: Unfortunately, we're unable to provide individual advice... and we don't know enough about your circumstances to do so if we could.
In general, we recommend most folks start with plain bullion coins. But depending on how much bullion you already own, you may want to consider diversifying your holdings with rare or semi-numismatic coins, or even a little jewelry. And if all of your gold is here in the U.S., you may want to consider owning some abroad as well.
We suggest contacting Van Simmons of David Hall Rare Coins, or Rich Checkan of Asset Strategies International, to learn more about your options. As always, we receive no compensation for recommending them, they've just always treated our customers well.
You can reach Van at (949) 567-1325, or via e-mail at info@davidhall.com. And you can reach Rich at (301) 881-8600, or via e-mail at infoasi@assetstrategies.com.
Regards,
Justin Brill
Baltimore, Maryland
January 30, 2017